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Could negative interest rates mean money back on your mortgage?

By Eitan Fox  //  Wed 28th October 2020
Last year, Danish bank Jyske introduced a ten-year fixed-rate mortgage with a rate of -0.5%. However, the mortgage attracted fees which outweighed the negative interest - meaning borrowers still had to pay a small amount for their loan.
Bank of England base rate remaining at the 0.1% record low
Could negative interest rates mean money back on your mortgage?

With the Bank of England base rate remaining at the 0.1% record low, introduced at the start of the coronavirus pandemic, there’s been a lot of talk in the media about what will happen if interest rates fall to zero, or even become negative.

Negative interest rates have been seen in other countries, and could be a reality in the UK, if it goes into a full, second lockdown. But what does that mean for savers and borrowers - will you be charged for holding money in a bank account or even paid for taking out a mortgage?

Probably not according to MoneySavingExpert founder Martin Lewis: "For those with mortgages and other debts, I wouldn't expect to see you paid a negative interest rate. For some who are on very low trackers, … I think it's more likely that we'd drop to somewhere around 0%. So, you wouldn't have any cost for borrowing money on your mortgage, which would help some.”

Last year, Danish bank Jyske introduced a ten-year fixed-rate mortgage with a rate of -0.5%. However, the mortgage attracted fees which outweighed the negative interest - meaning borrowers still had to pay a small amount for their loan.

According to most commentators, it seems unlikely that UK banks would introduce a similar offer. This is because there’s already a disparity between the bank base rate at 0.1% and most mortgage deals, which start at around 1.2% - meaning the Bank of England rate would need to fall to around -1.1% for mortgage rates to reach zero.

In addition, demand for mortgages is currently high, following the Chancellor’s stamp duty holiday, pushing rates up rather than down.

In any case, most UK borrowers have a fixed rate mortgage, with even tracker deals usually having a built in ‘collar’ below which the rate cannot fall.

For example, Nationwide Building Society has a two-year tracker mortgage with a rate of 1.34% above base rate. Nationwide states that all trackers have a base rate floor of 0%, meaning that even if the base rate goes into negative territory, the loan has a minimum rate of 1.34%.

Read more about this story on the This is Money and Money Saving Expert websites.

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